The Covid-19 pandemic is a crisis no one saw coming. And, unfortunately, it has had disastrous human and economic consequences. The short-term vacation rental market was hit particularly hard, demonstrating the fragility of the tourism industry. Nevertheless, there is light at the end of the tunnel. As travel restrictions are being eased around the world, vacation rental bookings are seeing a resurgence. The extra good news is that vacation rentals have an advantage over the hotel industry during this crisis. Why? There’s less sharing of space with other guests, including elevators and lobbies, thereby reducing the risk of virus transmission.
Maximizing the value of your property portfolio in such uncertain times is challenging though. If revenue management for vacation rentals was not yet a key activity for your company, we believe it will be crucial going forward from the Covid-19 crisis. The companies that are the most successful in the vacation rental industry, generate the best margins, and have time to focus on their growth are the ones that know how to adapt constantly.
So, what is the way ahead?
Goodbye, Historical Data!
The Covid-19 crisis will create a new era for revenue management.
Over the last few years, we saw strong adoption of revenue management principles. When we started a few years ago, many properties had flat pricing throughout the year. However, this is no longer the theme. Smart property management companies or hosts adjust their prices based on seasons. The idea of adjusting prices got a stamp of approval when Airbnb decided to launch its Smart Pricing tool.
However, for many, revenue management was still a simple trick. With the availability of historical data, whether from data providers or own portfolio data, it was easy to mark-up your prices a bit based on the economic growth and all was good.
Today, we are living in a new era. Historicals no longer apply! At least not in the truest sense. That’s not to say that historical data isn’t useful. It is still needed to understand various underlying trends.
However, relying solely on historical data for 2020 and beyond will not be enough. The Covid-19 crisis will in the short-term change the demand and supply behavior, and it’s anyone’s guess as to what might happen in the long term.
The Future of Revenue Management
In a volatile and likely reduced-demand market, pricing strategies based on fixed, across-the-board percentage increases on last year’s average prices are no longer optimal for increasing rental revenue. It’s necessary to use a pricing strategy that’s as “real-time” as possible. It should correspond to the reality of the hyperlocal market where your properties are located, taking into account:
- Current traveler behavior (lead time, length of stay)
- Current offers (price and availability)
- Market trends, monitored at the same time as events happen.
Revenue management will also be influenced by new habits and trends that will take root in the world of travel, in the weeks and months to come, including:
- More domestic tourism and travel, predominantly “staycations” at secluded destinations within driving distance of people’s homes.
- Preference for accommodations that have adopted superior sanitary and hygiene practices.
- Cash flow issues forcing the closure of some property managers and compelling others to come up with unique new business models and offerings, so as to differentiate themselves from the remaining players and outdo the competition.
Post Covid-19 Revenue Management Strategy
Based on the above observations, we expect the following factors to have a profound impact on revenue management strategies in the immediate future.
- Need for constant monitoring of trends — It’s impossible to predict what the ramp will look like. Some people will start traveling straight away. For other people, it may take a month or a few months. As a result, in order to ensure you’re setting competitive rates that best drive revenue, your pricing strategy needs to be dynamic to adjust for continual shifts in demand and supply. The problem is that it’s difficult, and time-consuming, to manually monitor market movements and adapt your pricing strategy. This is best done algorithmically, through Artificial Intelligence and Machine Learning.
- Need for automation — One thing that’s certain is that customers are going to be more demanding than before. Extra operational tasks such as Covid-level cleaning, coupled with the furlough of workers by companies, gives rise to additional pressure. In other words, you’ll need more hours in a day. Thus, if there are manual tasks that you can automate to boost efficiency, now is the time to do so
- Need for personalized revenue management– While all of the above is great, effective revenue management ultimately depends on your circumstances. This makes it imperative to have flexible customizations in your software, so you can manage your revenue better.
How Have We Adapted to the COVID-19 Crisis?
We can’t pretend that we anticipated this crisis. What’s most important is that we have tried to adapt to it, and especially adapt our algorithms. We made modifications to our algorithm to account for Covid. Our dedicated Covid-19 Resource Center and Market Dashboards allow property managers in the vacation rental industry to discover what is happening in their hyperlocal geographical area. This is of immense value in understanding human behavior and travel trends.
Notably, we strategically use Artificial Intelligence and Machine Learning to process, analyze, and model a substantial amount of data. This data is focused on the pulse of short-term rental activity (bookings/cancellations/lead time/length of stay), and it provides a powerful aid to decision-making and adaptation.
As stated by global management consulting firm BCG, “…The companies that apply machine-learning approaches, provided they frequently retrain their algorithms, will have a structural advantage over their peers in terms of price optimization.”
How Can We Help You Adapt?
For six years, at PriceLabs, we have done everything to deliver the best data analysis for the short-term rental industry, to enable property management companies to define the most suitable revenue management strategies.
For the past few months, at PriceLabs, we have taken up the challenge of adapting to support property management companies in the evolution of the industry. And, we love taking on challenges!
You can count on us to be by your side, thanks to our advanced features, and also our team dedicated to your success. Find out more about how PriceLabs works here.